Learning from Startup Nation

Wednesday

Mar 26, 2014 at 6:00 AM

By Peter S. Cohan WALL & MAIN

Israel spawned at least two religions. But it has recently become known as a Startup Nation — with more NASDAQ-listed companies per capita than any country. On March 23, I returned from 10 days there, along with 23 students from Babson College who were there to learn about what make Israel's startup scene tick.

Here are four observations about what we saw and how it relates to entrepreneurship.

1. Israeli military. In Jerusalem, we visited a holocaust museum, Yad Vashem, which I think is deeply tied to the role that the military plays in Israel. As I was walking through the exhibit, three questions came to mind: How could humanity produce such an evil leader? Why didn't Europe's Jews either fight back or leave before it was too late? Why did so much of the rest of the world — including Germans and other countries — tacitly approve of Hitler's actions?

The lesson for Jews is that their survival depends on having territory and being able to defend it with a world-class military. And as the students experienced during a half day at an Israeli military training school, it is a military that teaches Israeli society certain values — such as the importance of setting and achieving very ambitious goals and thinking creatively about strategy.

For startups, the military also produces people with expertise in fields such as information security that leads to the creation of world-class startups like publicly-traded high tech companies Imperva and Check Point Software. More generally, Israel's military produces many people with an entrepreneurial mindset who are not afraid to bet their careers on their ability to build successful new companies.

2. Limits to Israel's competency. There has been plenty of hype about Israel as Startup Nation but many of those startups are not headquartered in Israel.

Instead, their founders move to the U.S., keep R&D in Israel and run marketing and other operations are out of places like Silicon Valley. Israel appears to lack world-class marketing and sales people and the pool of people who can manage a large, publicly-traded company is limited.

This means that Israel does not have many pillar companies — that can provide capital and talent for local startups, use the startups' products, and perhaps acquire the startups once they have proven themselves. Without pillar companies, the full economic potential of Israel's startup skills is limited.

Our visits to Israeli religious sites suggest that different values lead to different startup skills. Judaism does not go out of its way to convert people — to a great extent, it sees itself as a great religion that speaks for itself, and converting is difficult. Whereas Christianity — with over a billion adherents — focuses more on spreading the word and attracting new followers.

I wonder whether it is worth testing the idea that Israeli's relatively weak marketing and sales skills are an outgrowth of Judaism. Perhaps there are Israeli entrepreneurs who think that their products are better than anything else on the market and that their superiority is self-evident.

America, which has a Christian majority, is much stronger in marketing and sales. And it may seem easier for Israeli entrepreneurs to outsource those skills to managers in the U.S. who are steeped in the skills of converting potential customers into paying ones.

3. Learning from failure. As we experienced when we climbed 20 minutes through a 2,000-year-old former sewer pipe underneath Jerusalem, Israel is built on at least 10 layers of now-failed civilizations. I wonder whether this urban landscape is related to how Israeli startups operate.

As we learned at Imperva, the first idea is not always the one that works. Answers.com CEO, Bob Rosenschein — who was born in Pennsylvania and got a degree from MIT before eventually moving to Israel — also had his share of missteps. But these entrepreneurs learned from their failures and persisted. They experienced the satisfaction of turning failure into success.

This is not an idea that is unique to Israel, but it is important for entrepreneurship anywhere and the absence of an Israeli stigma for failure certainly helps boost startup activity. Jerusalem's layers could be a metaphor for this idea of building on what you learn from failure.

4. Qualities of successful entrepreneurs. We saw examples of what a successful entrepreneur does. Imperva's cofounder and chief technology officer, Amichai Shulman, saw the importance of putting together a founding team with the right mix of skills and the passion to keep getting better even after achieving financial success. Venture capital firm Cedar Ventures partner Motti Vaknin even developed a process for investing in great teams before they had figured out a business idea.

And Mr. Rosenschein's angelic demeanor was a great example of how important it is to be a good person. He embodies the values of loving your work, hiring great people, treating them with respect, and listening and responding to the needs of your people and the market.

And these are entrepreneurial values that work anywhere.

Peter Cohan of Marlboro heads a management consulting and venture capital firm, and teaches business strategy and entrepreneurship at Babson College. His email address is peter@petercohan.com.